Is Staking a good idea for the crypto space?
Staking is obviously on the up lately with more than 50% of the top 50 coins in Coin Market Cap offering some sort of a staking program. When you mention Staking to the crypto community, a lot of people see it as a smart way to earn passive income from your crypto assets while others think that it shifts away from the original values of cryptocurrency. But What is Staking really and how does it work? Is staking really a good idea in the long run?
What is Staking and How does it work?
The term Staking means locking up your crypto asset in the blockchain network to receive rewards and interest. The concept is quite similar to Banks which provide you with the annual interest for saving your money with them but in staking, you receive a chance to become a validator and receive rewards for helping the network validate transactions. The rewards in the staking program mostly are in the form of new coins from the coin supply and although there is no certain way to calculate the reward you can receive for staking but here are some of the factors that may affect:
- The number of coins you stake.
- Staking period.
- The total amount of coins staked in the respective blockchain network.
- Prevailing performance of the coin in the market.
Staking gained its popularity in 2012 with Peercoin which is the first coin to adopt the proof-of-stake (POS) consensus mechanism. It was then viewed as a much more energy-efficient solution for securing transactions throughout the blockchains as the validators are chosen not by the amount of computing power it has but by staking their assets. This idea then gains its major traction when more cryptocurrency networks adopt the POS system and produce different variations of this consensus mechanism. The biggest cryptocurrency by Market Cap in 2022 that offers Staking programs includes Cardano, Tezos, Avalanche, and Polkadot.
How does staking actually work? First what you need to do is to become a validator by purchasing a coin that uses the proof-of-stake mechanism, then you need to set up your core wallet and send the coins to a staking deposit contract which will then lock your coins based on the staking period. Then you as a validator will have the chance to be selected at random when the next block is added to the network and if you validate it correctly, you will earn a certain portion from the transaction fees as your rewards. Of course, the number of coins you stake will affect the probability of you being chosen in the network and for some networks, the minimum staking requirement could be quite high to be run by an individual.
There are other ways for you to stake like joining a staking pool which enables stakers to earn block rewards by sharing their resources, similarly to a mining pool and the rewards are usually split between the pool operator and pool delegators. You could also join a staking program through an exchanger who offers such a program.
Staking has seen massive growth especially during the pandemic where everybody needed an income, with the recent reports from Staked that estimates it as an $18 Billion industry but is staking generally a good idea?
Is Staking really a good idea?
Staking definitely presents itself as a win — win solution for the blockchain network and also its validators. Staking ideally is a good idea to all of you HODLers who would like to receive an additional passive income to your assets.
Obviously, you might have heard of the benefits over and over again because that is mostly marketed in the space which is the “Sunshine and Rainbows” of staking but behind all this, there are some serious risks which needs to be put into consideration. One of the main risks is something called as impermanent loss, which is happening to a lot of holders right now in the dipping market. This means that the amount of returns you get is much less than the loss you are experiencing on your collateral and the loss is not permanent until you sell the asset. Not all staking programs prohibit you from unstaking the assets but some of them that give you promises of high APY will require a lockup period so that needs to be verified.
For coins that require a lockup period, there is also a question of safety of the assets staked. Although they are usually protected with a smart contract, it is still created by the developers. What if these coins end up non performing or scam scheme in the market and you don’t have any control over your assets? These obviously will not happen to high cap coins like Etherum, Tezos and Cardano which have stood the test of time but what about the low cap coins that promise you 1000% APY? While only to found out that these coins have been red listed by Coin Market Cap.
Speaking about high cap coins, don’t you know that some of them have unlimited supply? Is the asset supposed to be deflationary or grow in value over time if the supply is increasing? One of the main concerns with staking is the rewards offered to you are the coins themselves which therefore further increase the supply in the market. Of course, you can tackle this by implementing a routine burning process, but can the number of coins burn beat the number of coins produced by the rewards?
Well Staking is a good idea to get people involved in the network while having a chance to make a passive income off their assets. Obviously, there are a lot of risks involved with you not being in control of your assets but it is expected to grow especially with the implementation in Ethereum 2.0. Can the current staking mechanism be improved?
We in Nagaya Technologies Pte. Ltd offers you something better than a staking program that will provide better incentives for all our Holders Worldwide. Every Nagaya purchased and held in the wallet will receive a monthly profit sharing in USD from all of Nagaya’s subsidiary projects. By doing this, not only it provides benefits to our holders but also maintains the supply of Nagaya to keep it deflationary and encourage growth in the long run. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at nagaya.io
Or you can talk to us at t.me/nagayaofficial